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100 Test Bank for Cornerstones of Financial Accounting 1st Edition by Rich Multiple Choice Questions On January 1, a company reported assets of $1,000,000 and liabilities of $600,000 During the year, assets decreased by $100,000 and shareholders’ equity decreased $200,000 What is the amount of liabilities at December 31? a.$200,000 b.$500,000 c.$600,000 d.$700,000 Which of the following describes “revenues”? a.decreases in assets resulting from the sale of goods or services b.increases in equity resulting from the sale of products or services c.assets used or consumed in the sale of products or services d.increases in the financing activities Which of the following is a correct fundamental accounting equation? a.assets + liabilities = shareholders’ equity b.assets + retained earnings = shareholders’ equity c.assets + shareholders’ equity = liabilities d.assets = liabilities + shareholders’ equity Which of the following is NOT a form of business entity? a.sole proprietorship b.partnership c.cooperative d.corporation This company’s end-of-year balance sheet consisted of the following amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment 350,000 Long-term debt 200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What amount should the company report on its balance sheet for total assets? a.$550,000 b.$775,000 c.$850,000 d.$950,000 Which financial statement would you refer to in order to determine the resources (assets) a company owns? a.balance sheet b.statement of retained earnings c.income statement d.statement of cash flows Which of the following assets are noncurrent? a.machinery and equipment b.accounts receivable c.inventories d.unearned revenues Which of the following is the correct date format for the financial statement heading? a.Balance Sheet – For the Year Ended June 30 b.Income Statement – At December 31 c.Income Statement – For the Year Ended December 31 d.Statement of Retained Earnings – At December 31 Which of the following terms best describes a distribution of the net income of a corporation to its owners? a.retained earnings b.dividends c.expense d.monetization Which of the following three main activities are businesses engaged in? a.financing, investing, operating b.cash, credit, noncash c.financing, crediting, operating d.financing, managing, operating The company reported the following items on its financial statements for the year ended December 31: Sales$780,000Cost of sales$700,000; Selling, general and administrative expense20,000Other expense15,000; Dividends5,000Income tax expense12,500 What is the company’s net income for the current year? a.$22,500 b.$32,500 c.$42,500 d.$80,000 You are a potential creditor and are concerned that a particular company you are ready to lend money to may have too much debt Which financial statement will provide you with the information you need to evaluate your concern? a.balance sheet b.income statement c.statement of retained earnings d.statement of public accounting What are the resources used to earn revenues during a period called? a.net income b.expenses c.revenues d.dividends Which of the following statements reports an entity’s financial position at a specific date? a.balance sheet b.statement of retained earnings c.income statement d.statement of cash flows In which form of organization are the owners’ legal responsibilities for the debts of the business limited to the amount they invested in it? a.cooperative b.corporation c.partnership d.proprietorship Which of the following is an internal user of financial information? a.company manager b.government c.creditor d.investor Which of these statements summarizes the results of a company’s operations? a.statement of cash flows b.statement of retained earnings c.balance sheet d.income statement Which one of the following is an internal user of financial statements? a.Canada Revenue Agency b.creditor c.shareholder d.company president Which of the following financial statements show the end-of-year cash balance for a business entity? a.income statement and statement of retained earnings b.balance sheet and statement of cash flows c.statement of retained earnings and statement of cash flows d.balance sheet and statement of retained earnings Which of the following items appears on a balance sheet? a.service revenue b.unearned revenue c.dividends d.cash flow from operations What is the term for the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing, and uncertainties of the company’s future cash flows? a.financial accounting b.auditing c.managerial accounting d.bookkeeping Which of the following best describes the term “retained earnings” of a company? a.the amount of total profits earned by a company since it began operations b.the amount of claim that the owners have on the assets of the company c.the future economic resources of a company d.the accumulated net income that has not been distributed to owners as dividends What is another term for “short-term investments”? a.inventories b.accounts receivable c.contributed capital d.marketable securities In which of the following ways is the balance sheet linked to the other financial statements? a.The amount of retained earnings is reported on the balance sheet as a liability b.Retained earnings is added to total assets and reported on the balance sheet c.Retained earnings is reported on the balance sheet d.There is no such link, as each statement contains different accounts and provides different information What type of account is unearned revenue? a.shareholders’ equity b.liability c.asset d.expense Which of the following correctly represents one of the basic financial statement models? a.assets - liabilities = net income b.assets + liabilities = total assets c.revenues + expenses = net income d.beginning retained earnings + net income - dividends = ending retained earnings Which account is a liability? a.cash b.retained earnings c.accounts receivable d.accounts payable What is the term for a person who lends funds to a business entity and expects repayment with interest? a.creditor b.owner c.proprietor d.shareholder Which of the following invests funds in a business and is considered an owner? a.shareholder b.creditor c.banker d.lender Which financial statement would you analyze to assess a firm’s operating performance over the past year? a.balance sheet b.statement of retained earnings c.income statement d.statement of public accounting Which of the following is a classification on the classified balance sheet? a.operating accounts b.shareholders’ equity c.revenues and expenses d.net income and dividends Which type of business activity is purchasing new equipment? a.financing b.operating c.investing d.measuring Which of the following describes the term “current assets”? a.the amount of total assets earned by a business since it began operations plus all other resources b.the amount of claim that the owners have in the business in the current year c.assets expected to be converted into cash within one year or one operating cycle, whichever is longer d.the cumulative profits earned by a business less any dividends distributed in the current period This company’s end-of-year balance sheet consisted of the following amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment350,000Long-term debt200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What is the retained earnings balance at the end of the current year? a.$50,000 b.$550,000 c.$800,000 d.$850,000 Which of the following best describes the term “expenses”? a.the cost of assets used in the investing activities of a business b.the amount of interest or claim that the owners have in the business c.the future economic resources of a business entity d.the cost of assets used in the operations of a business Which of the following is considered an internal user of financial statements? a.a supplier considering selling to the company on credit b.a labour union representing employees of a company in labour negotiations c.a financial analyst preparing recommendations on companies in a certain industry d.a manager of a company who is supervising production workers 100 Free Test Bank for Cornerstones of Financial Accounting 1st Canadian Edition by Rich Multiple Choice Questions - Page The following balances are provided: Cash$234,000Accounts payable$ 97,000; Inventories121,000Notes payable (due 2018)211,000; Land453,000Accounts receivable46,000 How much is current assets? a.$401,000 b.$498,000 c.$709,000 d.$854,000 The following balances were taken from the company’s records: Inventory$380,000Accounts receivable$190,000; Land290,000Accounts payable180,000; Cash129,000Unearned revenue110,000; Prepaid rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 How much is the current ratio? a.2.10 to b.2.52 to c.2.75 to d.3.00 to Assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year) How are they reported on a classified balance sheet? a.as property, plant, and equipment b.as current assets c.as intangible assets d.as current liabilities What is the total sales for a company that reported a net loss of $1,500,000 and total expenses of $2,900,000? a.$1,400,000 b.$1,600,000 c.$2,400,000 d.$4,400,000 Which of these items is reported as a current shareholders’ equity on a classified balance sheet? a.net income b.accounts payable c.land d.common shares What is distinguished on a classified balance sheet? a.assets and liabilities b.current and noncurrent items c.liabilities and shareholders’ equity d.resources invested by the owners and amounts borrowed from creditors For the most recent year, a company’s current ratio was significantly lower than its industry’s average What is the best possible explanation for this situation? a.The company’s competitors were profitable b.The company’s liquidity improved c.The company had less equity than the rest of the industry d.The company’s liquidity was worse than the industry A company has $10,500,000 of revenues, declares and pays $550,000 in dividends, and has net income of $1,600,000 How much were expenses for the year? a.$1,050,000 b.$2,150,000 c.$8,900,000 d.$9,950,000 What is the primary objective of financial reporting? a.to help investors make credit decisions b.to help management assess cash flows c.to protect users from fraudulent financial information d.to provide useful information for decision making Which financial statement(s) does net income appear on? a.a balance sheet only b.an income statement only c.a balance sheet, income statement, and statement of cash flows using the indirect method d.an income statement, statement of cash flows using the indirect method, and statement of retained earnings Which of the following are current assets? a.accounts receivable, net income, inventory, and dividends b.cash, accounts receivable, common shares, and sales c.net income, cash, office supplies, and inventory d.cash, accounts receivable, inventory, and office supplies The company reported the following information for the year ended December 31, Year 2:Revenues$2,500,000; Expenses2,000,000; Retained earnings at December 31, Year 1100,000; Retained earnings at December 31, Year 2450,000 How much was paid out in dividends in Year 2? a.$150,000 b.$250,000 c.$350,000 d.$500,000 The company reported the following information for the year ended December 31, Year 1: Net income$100,000; Dividends6,000.Retained earnings at December 31, Year 1120,000 What was the economic effect of the dividend payment? a.It reduced net income b.It increased net income c.It reduced total retained earnings d.It reduced liabilities Which of the following are considered tangible assets? a.franchises b.copyrights c.investments d.trademarks The following balances are provided: Cash$234,000Accounts payable$ 97,000; Inventories121,000Notes payable (due 2018)211,000; Land453,000Accounts receivable46,000 How much is current liabilities? a.$97,000 b.$143,000 c.$211,000 d.$354,000 The company reported the following information for the year ended December 31, Year 1: Net income$100,000; Dividends6,000 Retained earnings at December 31, Year 1120,000 What was the balance of retained earnings at January 1, Year 1? a.$ 21,000 b.$ 26,000 c.$106,000 d.$214,000 The following balances were taken from the company’s records: Inventory$380,000Accounts receivable$190,000; Land290,000Accounts payable180,000; Cash129,000Unearned revenue110,000; Prepaid rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 How much is the total current assets? a.$732,000 b.$842,000 c.$974,000 d.$1,022,000 On January 1, Year 1, a company’s balance in retained earnings was $10,000,000 At December 31, Year 1, the balance in retained earnings was $9,400,000 If the company earned net income of $440,000 during the year, how much were dividends? a.$440,000 b.$600,000 c.$1,000,000 d.$1,040,000 Barnes Restaurant reports the following amounts: Cash$125,000Inventory$215,000; Land275,000Unearned revenue117,000; Equipment350,000Common shares300,000 How much are current assets? a.$125,000 b.$340,000 c.$457,000 d.$615,000 Which of the following are considered current assets? a.intangibles b.property, plant, and equipment c.inventory d.patents A company reports the following information at December 31, Year 1: Sales$15,000,000; Cash3,000,000; Unearned revenue 400,000; Dividends1,000,000; Cost of sales8,500,000 What is the company’s gross profit? a.$5,500,000 b.$6,100,000 c.$6,500,000 d.$12,000,000 Beginning retained earnings$550,000; Ending retained earnings700,000; Dividends paid100,000; Revenue525,000 What is the company’s net income? a.$150,000 b.$250,000 c.$300,000 d.$350,000 Which of the following accounts are normally reported as current liabilities on a classified balance sheet? a.accounts payable and prepaid insurance b.interest payable and interest receivable c.income taxes payable and salaries payable d.common shares and accounts payable The company reported the following items on its financial statements for the year ended December 31: Sales$780,000Cost of sales$700,000; Selling, general and administrative expense20,000Other expense15,000; Dividends5,000Income tax expense12,500 What amount will be reported as retained earnings on the balance sheet at December 31, assuming this is the first year of operations? a.$22,500 b.$27,500 c.$42,500 d.$80,000 The company reported the following information for the year ended December 31, Year 2:Revenue $14,000,000; Expenses11,500,000; Dividends1,000,000; Retained earnings at December 31, Year 21,750,000 What was the retained earnings balance at December 31, Year 1? a.$ 250,000 b.$3500,000 c.$1,500,000 d.$2,500,000 A company had total assets of $650,000 and total shareholders’ equity of $250,000 at the beginning of the year During the year, total assets increased by $350,000, total liabilities increased by $100,000, and dividends were paid in the amount of $300,000 No other transactions occurred except revenues and expenses How much is net income for the year? a.$500,000 b.$550,000 c.$650,000 d.$750,000 Which of the following can be said of external users of financial information? a.They need detailed records of the business to make informed decisions b.They are primarily responsible for the preparation of financial statements c.They rely on the financial statements to make informed decisions d.They rely on management to tell them whether the company is a good investment A company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000 How much is total shareholders’ equity? a.$800,000 b.$1,800,000 c.$2,000,000 d.$3,800,000 Beginning retained earnings$550,000; Ending retained earnings700,000; Dividends paid100,000; Revenue 525,000 What are the company’s expenses? a.$100,000 b.$150,000 c.$275,000 d.$450,000 What are economic resources? a.assets b.liabilities and shareholders’ equity c.owners’ equity and shareholders’ equity d.revenues On January 1, Year 1, a company’s balance in retained earnings was $275,000 During Year 1, the company earned net income of $23,500 and paid $11,200 in dividends Calculate the retained earnings balance at December 31, Year 1 a.$262,700 b.$263,800 c.$287,300 d.$298,500 100 Free Test Bank for Cornerstones of Financial Accounting 1st Canadian Edition by Rich Multiple Choice Questions - Page Which of the following equations represents the statement of retained earnings activity? a.beginning retained earnings + net income + dividends = ending retained earnings b.beginning retained earnings + cash inflows - cash outflows = ending retained earnings c.beginning retained earnings + dividends - net income = ending retained earnings d.beginning retained earnings + net income - dividends = ending retained earnings Which of the following best relates to the “notes to the financial statements”? a.It should be shown at the bottom of the income statement b.It should be excluded, as they are not an integral part of the financial statements c.It should be included as an integral part of the financial statements d.It should be considered an optional part of the financial statements Barrett Oil Company reported the following balances as of December 31, Year 1: Accounts receivable $125,000Unearned revenue $5,000; Cash 150,000 Notes payable (due in months) 115,000; Land 200,000 Accounts payable 70,000 Building400,000Equipment 165,000; Inventories105,000Notes payable (due 07/01/2020)600,000 What is the company’s current ratio? a 48 to b.2.00 to c.2.55 to d.2.86 to Which of the following is working capital and current ratio most useful for evaluating? a.a company’s liquidity b.a company’s solvency c.a company’s profitability d.a company’s revenues A company has current assets of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000 How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2.0 to 1? a.$40,000 b.$60,000 c.$150,000 d.$180,000 The following balances were taken from the company’s records: Inventory$380,000 Accounts receivable$190,000; Land290,000Accounts payable 180,000; Cash129,000Unearned revenue 110,000; Prepaid rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 If the average current ratio for similar companies is 2.0 to 1, what does this tell you about this company’s liquidity? a.The company is more liquid than its competitors b.The company has more long-term assets than its competitors c.The company is bankrupt d.The company is more profitable than its competitors In which section of the annual report would you find the following: “The financial statements, in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with generally accepted accounting principles”? a.Management Report b.Notes to the Financial Statements c.Management’s Discussion and Analysis d.Report of the Independent Auditor The company reports the following balances: Other revenue$180,000General and administrative expense$320,000; Dividends paid$220,000Operating revenues$700,000; Selling expenses$280,000Income tax expense$60,000 By what amount will net income on a single-step income statement differ from net income on a multiple-step income statement if the company prepares both formats? a.$0 b.$2,000 c.$6,000 d.$8,000 Which of the following is NOT one of the activities on the statement of cash flows? a.operating activities b.investing activities c.business activities d.financing activities The company reports the following balances: Other revenue$180,000General and administrative expense$320,000; Dividends paid$220,000Operating revenues$700,000; Selling expenses$280,000Income tax expense$60,000 What is the company’s net income? a.$40,000 b.$100,000 c.$220,000 d.$280,000 Which of the following is one purpose of the Report of the Independent Auditor? a.to provide a place for management to justify questionable items in the statements b.to provide comparative ratios for the company’s financial data c.to provide the accountant’s opinion of the fairness of the financial statements d.to satisfy the need for full disclosure of all the facts relevant to a company’s results and financial position On a multiple-step income statement, operating income results from subtracting total operating expenses from which of the following amounts? a.gross margin b.cost of goods sold c.income before taxes d.net sales The company reports the following balances: Other revenue$180,000General and administrative expense$320,000; Dividends paid$220,000Operating revenues$700,000; Selling expenses$280,000Income tax expense$60,000 What is the company’s income from operations? a.$40,000 b.$100,000 c.$220,000 d.$280,000 Which of the following items would NOT be reported on a multiple-step income statement after income from operations? a.income taxes b.interest income c.selling expenses d.interest expense Which of the following financial statements shows the earningsper-share measure? a.statement of cash flows b.retained earnings statement c.income statement d.balance sheet A company has increased its dollar amount of working capital over the past several years Which of the following measures should be used to further evaluate the company’s liquidity? a.the asset ratio b.an analysis of the company’s long-term debt c.an analysis of the return on shareholders’ equity d.the current ratio The list below contains several items that appear on a multiplestep income statement: 1)other income and expense; 2)income before income taxes; 3)net Income; 4)operating expenses; 5)gross margin; 6)net sales; 7)income from operations In which order would these items appear on a multiple-step income statement? a.6, 5, 4, 7, 1, 2, b.7, 6, 1, 4, 2, 3, c.6, 5, 4, 1, 7, 2, d.6, 7, 4, 1, 2, 3, A company reported the following income statement amounts:Year 2Year Sales revenues$950,000$800,000; Operating expenses$700,000$550,000; Income taxes$100,000$100,000 Which of the following best describes the company’s performance? a.The company’s operating profit as a percentage of operating revenues decreased b.The company has become more profitable c.The increase in operating revenues increased the company’s net income d.The operating expenses as a percentage of operating revenues remained the same Which of the following would appear on an income statement? a.unearned revenue b.cost of sales c.retained earnings d.dividends Which of the following is NOT a characteristic of liquidity? a.measures the ability of the firm to pay financial obligations as they become due b.can be measured in terms of working capital c.can be assessed by the current ratio d.measures the ability of the company to pay its long-term debts Been There Used Furniture began operations on January 1, Year 1, with an initial investment of $100,000 from each of its five shareholders During the year, the company had net income of $200,000 and paid dividends of $50,000 Which of the following can be said about its dividends for the year? a.They increased the amount of capital shares reported by the company b.They were part of the company’s operating expense c.They were reported on the statement of retained earnings d.They were reported on the income statement If the current ratio is to and total assets equal $200,000, how much is working capital? a.$0 b.$100,000 c.$200,000 d.$300,000 A question frequently asked by investors is, “How much debt does this company have?” Which financial statement answers this question? a.single-step income statement b.cash flow statement c.multiple-step income statement d.classified balance sheet Which of the following calculates working capital? a.current assets divided by current liabilities b.total assets minus total liabilities c.current assets minus current liabilities d.current assets plus current liabilities Been There Used Furniture began operations on January 1, Year 1, with an initial investment of $100,000 from each of its five shareholders During the year, the company had net income of $200,000 and paid dividends of $50,000 What is the retained earnings balance at December 31, Year 1? a.$150,000 b.$200,000 c.$500,000 d.$650,000 Which of the following best describes a company’s operating activities? a.They are cash flows directly related to earning income b.They are necessary to provide the money to start a business c.They are needed to provide the valuable assets required to run a business d.They represent the right to receive a benefit in the future Which of the following sections is NOT found in a corporate annual report? a.Notes to the Financial Statements b.Internal Budget Reports c.Report of the Independent Auditor d.Management’s Discussion and Analysis Which of the following is shown on the income statement? a.how much profit the company has earned since it began operations b.net income equal to the amount of cash on the balance sheet c.a summary of the results of operations for a period of time d.the liquidity of the company on an annual basis Been There Used Furniture began operations on January 1, Year 1, with an initial investment of $100,000 from each of its five shareholders During the year, the company had net income of $200,000 and paid dividends of $50,000 If the company’s revenues were $500,000 for the year ended December 31, Year 1, how much were total expenses? a.$250,000 b.$300,000 c.$350,000 d.$800,000 A company has current assets of $2,100,000 and current liabilities of $500,000 How much is its working capital? a.$500,000 b.$1,600,000 c.$2,100,000 d.$2,600,000 Which financial statement reports information helpful in assessing working capital? a.balance sheet b.capital statement c.statement of retained earnings d.statement of cash flows Which of the following best describes a report’s section titled “Management’s Discussion and Analysis”? a.It is a report of the independent auditor b.It can be a substituted for the notes to the financial statements c.It explains various items reported in the financial statements d.It provides assurances that the auditors are responsible for the financial statements Which of the following items will be found in a corporate annual report? a.industry standards b.notes to the financial statements c.selected financial data from noncompetitor companies d.management’s statement that the auditors are responsible for the financial statements ... d.a manager of a company who is supervising production workers 100 Free Test Bank for Cornerstones of Financial Accounting 1st Canadian Edition by Rich Multiple Choice Questions - Page The following... of external users of financial information? a.They need detailed records of the business to make informed decisions b.They are primarily responsible for the preparation of financial statements... income of $23,500 and paid $11,200 in dividends Calculate the retained earnings balance at December 31, Year 1 a.$262,700 b.$263,800 c.$287,300 d.$298,500 100 Free Test Bank for Cornerstones of Financial